EUR/USD Outlook April 4-8

After the euro traded quite wildly in the range, the upcoming week will likely feature the first rate hike in 2 years. And there are many more events to rock the common currency this week. Will we see it break above one year highs? Here’s an outlook for the European events and an updated technical analysis for EUR/USD.

Friday’s US Non-Farm Payrolls sent EUR/USD down, but support worked perfectly and it eventually positioned itself quite close to the critical resistance line. The market is currently disregarding the multiple credit downgrades for Ireland and Portugal which is close to a bailout.

EUR/USD daily chart with support and resistance lines marked. Click to enlarge:

1. Sentix Investor Confidence: Monday, 8:30. The 2800 analysts and investors surveyed by Sentix have shown growing optimism. The score exceeded expectations in the past two months, and they are quite optimistic. From a score of 17.1 points last month, the figure is expected to ease to 16.1 this time.
2. PPI: Monday, 9:00. Producer prices are also on the rise in the Euro-zone, although at a slower pace than consumer prices. As Germany already released its PPI figure, expectations tend to be accurate here. A pace of 0.7% is predicted now, nearly half of last month’s pace.
3. Final Services PMI: Tuesday, 8:00. According to the first release, the services sector is still growing at a good pace in the Euro-zone. The score of 56.9 is far enough from the critical 50 point mark separating growth and contraction. This will probably be confirmed now.
4. Retail Sales: Tuesday, 9:00. Consumers are somewhat more skeptical than the manufacturing sectors. A very modest growth of 0.1% was recorded last time, and a similar rise in the volume of sales is likely now. This is based on weak results from Germany.
5. Final GDP: Wednesday, 9:00. This figure is rarely modified in the final release. Nevertheless, the overall view of this figure makes this release significant. The growth rate of 0.3% in Q4 will likely be confirmed now.
6. German Factory Orders: Wednesday, 10:00. Europe’s powerhouse has thriving industry. Factory orders grew by an impressing 2.9% last month and are likely to continue growing, but at a more modest pace, 0.6%. A rise higher than 1% will boost the Euro.
7. German Industrial Production: Thursday, 10:00. The second industrial figure from Germany is more important. Also here, healthy growth of 1.8% was seen in the previous release, and also here, a slowdown is predicted now – 0.6%. A rise of more than 0.8% or a rise of under 0.3% will rock the Euro just before the rate decision.
8. Rate decision: Thursday, 11:45. The  ECB will raise the rate by 0.25%. This is the consensus at the moment. After the intensive talk that began in the last decision and continued with “strong vigilance” since then, it’s clear that Trichet will move on the rates. The move is backed also by the jump in CPI just reported. A raise of 0.50% as some are expecting, isn’t likely now, but 2 more 0.25% rate hikes until the end of the year are quite likely. The market expects a rate of 2% by the end of the year, but this might be  unnecessary  . While the euro gained from the talks about the rates and rising inflation, these hikes will hurt the chances of growth in the already troubled European countries.
9. German Trade Balance: Friday, 6:00. Europe’s largest economy enjoys a wide surplus in the trade balance. This surplus is expected to widen from 11.8 to 13.3 billion euros this time, and could supply more fuel for the euro after the rate hike.

* All times are GMT

EUR/USD Technical Analysis

Range trading  characterized Euro/Dollar in the past week, with an extra special roller coaster on Friday. The 1.4030 line (mentioned last week) proved to be strong support once again, and 1.4250 capped the pair before the almighty 1.4282 line. The pair finally closed at 1.4232.

Looking down, the past week’s pivotal line of 1.4160, which was a peak in the past and now provides only minor support.  It’s followed by a very strong support line –  1.4030. Apart from being a peak back in September, it was a very strong support line in recent weeks. Just before the current range trading, it worked as strong resistance.

A break under 1.4030 will open the road to 1.3950, that is only a minor support line, after working recently as resistance and being a pivotal line around November.  It’s followed by a much more distinct line – 1.3860, that worked in both directions and can be easily seen on the chart.

Next we find  1.3760 which is also rather strong. It held the pair during March and in the past as well. Very closely below, 1.37 is a round number that also works as minor support.

The next line of support is far – 1.3570, It worked as support several times at the beginning of 2011. The last line for now is 1.3440, which worked as support for the third time in the past year, and is the lowest level in two months.

Looking up, we find 1.4250. This has been a double top during the recent range trading and an early cap before the most important resistance line at the moment – 1.4282. This level, 1.4282 is the highest level in one year, reached in November 2010, just after QE2 was announced.

A break above 1.4282 will probably see EUR/USD shooting up and meeting veteran lines of resistance. The first line is only at 1.4450, which served as resistance at the beginning of 2010. It’s followed by 1.4580 which was a peak at the same period of time and worked as support earlier.

Further above, the round number of 1.48 was a tough line of support at the end of 2009. Even higher, above the round number of 1.50, we find 1.5144, the highest level since the financial crisis began.

I am neutral on EUR/USD.

The market sees only the rate hike. This pushes the pair up, even though this hike may curb growth in troubled countries. And these countries are struggling: The bailout plan for Greece isn’t working, Ireland needs more money for its banks and Portugal that is left without a government, urgently needs a bailout. All get credit downgrades. These two factors will continue pushing and pulling Euro/Dollar, with the rate hike and the 1.4282 being the keys.

Here are some additional recommended EUR/USD reads:

• Simon Smith sees a worsening debt threat under the euro.
• James Chen sees EUR/USD leaning towards an uptrend breakdown.
• Kathy Lien asks:  How Much Further Can the EUR Rise?
• Mohammed Isah sees the pair take aim at higher levels.
• TheGeekKnows writes a review of the past week looks forward.
• Andriy Miraru provides weekly support and resistance lines for major pairs, including EUR/USD.
• Gregor Horvat uses Elliott Wave Analysis and looks for the euro to lose against the majors in 2011 (video)

Further reading:

• For a broad view of all the week’s major events worldwide, read the  USD outlook.
• For the Japanese yen, read the  USD/JPY forecast.
• For GBP/USD  (cable), look into the  British Pound forecast.
• For the Australian dollar (Aussie), check out the  AUD to USD forecast.
• For the New Zealand dollar (kiwi), read the  NZD forecast.
• For USD/CAD (loonie), check out the  Canadian dollar.